Has the Mass. solar gamble paid off?

HOW MUCH SHOULD we pay to promote solar energy in Massachusetts? Recent state government programs have resulted in the commitment of at least $10 billion of consumer funds—well over $1,500 for every man, woman, and child in the state. Is there a need for more government-directed subsidization, or have we reached a point of diminishing returns? Let’s look at the big picture.

There is a long history of government support for new energy technologies. Most often, the rationale for such support is that the technologies offer possible strategic value in the future but are currently viewed as too risky for private development. So legislators and regulators, persuaded by technology companies and other advocates, adopt subsidy schemes to overcome the risk-averse behavior of private developers. Those schemes have the danger of creating a moral hazard, promoting investment in new technologies that is excessive relative to their risk-adjusted value to society—leading to a behavior that generates unwarranted costs that are ultimately borne by consumers.

An early example of this phenomenon was the Price-Anderson Nuclear Industries Indemnity Act. Following a 1946 mandate for the development of civilian nuclear power plants, Congress passed the Price-Anderson Act to offer no-fault protection to electric utilities and component manufacturers from lawsuits that might emerge from accidents at commercial nuclear power plants. Why? Because the structure of the insurance industry was incapable of providing the extent of coverage needed to adequately address the risks of nuclear power.

As noted by the American Nuclear Society, “The Act has removed the deterrent to private sector participation in nuclear activities presented by the threat of potential liability claims following a large accident.” The federal government provides $10 billion in coverage that would be unavailable at any price to any power plant operator in America.

These and other policies led to a rapid proliferation of nuclear power plants across America, accompanied by an expansion in the size of these generating units from a few hundred megawatts to over a thousand megawatts. By the late 1970s and early 1980s many utilities, too small to successfully manage the construction of these large units, were facing dramatic cost overruns. Electricity that had been promised as “too cheap to meter” became something else altogether. Utility finances suffered, and requests were made to collect the cost overruns from ratepayers. Many of those costs were passed through. Other plants were canceled in midstream—Seabrook 2, Pilgrim 2, Charlestown 1 and 2, Montague 1 and 2—and utilities attempted to recover those costs as well. Even after some cost recovery was allowed, the resulting financial weakness of utilities from the nuclear era led to years of deferred maintenance of the transmission and distribution system.